Cryptocurrency

BitMEX Review: Advanced Crypto Derivatives Trading Exchange

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While the likes of Coinbase, Binance, Bittrex and Kraken are often regarded as being the go-to place for cryptocurrency investors, did you know that BitMEX is now responsible for the some of the largest trading volumes in the industry?

In fact, it was recently reported that the platform achieved a record-setting 24-hour trading volume of $11 billion.

With that being said, it is important to note that BitMEX is not your typical cryptocurrency exchange. On the contrary, the platform specializes exclusively in derivative-style financial instruments. More specially, traders at BitMEX have the potential to trade popular cryptocurrencies like Bitcoin and Ethereum at leverage levels of upto 100x.

Taking into account the high-risk nature of the crypto-centric products that BitMEX offers, we would suggest reading our comprehensive review prior to opening an account. In doing so, you can make an informed decision as to whether the platform is right your investment goals.

We’ll cover everything from how the platform works, what you can trade, supported cryptocurrencies, fees, and security.

Let’s start by getting an overview of what BitMEX actually is.

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What is BitMEX?

Bitcoin Mercantile Exchange – or simply BitMEX as it is known, is a global cryptocurrency exchange that facilitates the buying and selling of crypto-centric derivatives. Launched in 2014 and now headquartered in the Seychelles, the platform was founded by CEO Arthur Hayes, alongside Samuel Reed and Ben Delo.

The main concept of BitMEX is that users have direct access to the global cryptocurrency trading industry via sophisticated financial vehicles that you would typically find in the traditional investment space.

This includes the likes of perpetual contracts, futures contracts, margin trading, and the platform’s proprietary BitMEX UP and DOWN contracts. Don’t worry, well explain the ins and outs of how these asset classes work in more detail further down.

Although the platform was only formed in 2014, BitMEX is responsible for some of the largest trading volumes in the cryptocurrency arena. As noted earlier, the platform reached a new milestone in June 2019 where a reported $11 billion of trading activity went through BitMEX in a mere 24-hour period. This in itself has put the crypto-centric exchange on the rader of key US regulators for some time now.

BitMex Website

In fact, it was reported in July 2019 that the U.S. Commodity Futures Trading Commission (CFTC) had opened an investigation into BitMEX. This is with respect to platform allegedly allowing US citizens to use the exchange, even though they are prohibited.

In reality, the general consensus is that US citizens do in fact use the platform for their trading endeavours, not least because BitMEX users are able to open an account anonymously. Even with the platform utilizing IP detection software, US users simply need to install a VPN.

Ultimately, irrespective of the platform’s industry-leading trading volumes, BitMEX operates in an unregulated manner and thus, users should still tread with caution.

So now that we’ve covered the basics, in the next section of our BitMEX review we are going to explain how the platform’s derivative products work.

Derivatives Available at BitMEX

Regardless of whether it’s in the context of the traditional financial markets or the cryptocurrency arena, derivatives are a highly complex asset class that should only be utilized by those with a firm understanding of how they work.

Here’s what you need to know about the derivatives available at BitMEX.

Perpetual Contracts

In its most basic form, a perpetual contract is very similar in nature to a conventional futures contract – albeit with one key difference. Unlike futures contracts, which typically have a maximum expiry date of three months, perpetual contracts never expire.

This means that there is no settlement date on the perpetual contracts purchased via BitMEX. In other words, they are only settled when you decide to exit the trade.

It is also worth noting that perpetual contracts most commonly trade at a different price to futures contracts. This is because the former aims to trade as close to the reference index price as possible, while the latter is exclusively focused on demand and supply.

Futures Contracts

If you do have an interest in crypto-centric futures contracts, BitMEX also facilitates this. All futures contracts are settled on a cash-basis, and depending on the underlying cryptocurrency it is tied to, comes with an expiry period of 7 days, 1 month, or 4 months .

Trading Screen

BitMEX UP (Upside Profit) Contract

The BitMEX UP (Upside Profit) Contract is offered as a way to speculate on a particular cryptocurrency increasing in value by a certain date. In layman terms, they operate in a very similar nature to traditional options contracts. Notably, the BitMEX UP (Upside Profit) Contract will have both an expiry date and strike price.

A 7 day BitMEX UP (Upside Profit) Contract on Bitcoin at a strike price of $10,500 would work as follows. If you felt that Bitcoin was about to go on a short-term bull run and thus, you felt that the market price would exceed $10,500 within the next 7 days, then you could pay a ‘Premium’ to access the market. Only one of two things can then happen.

Scenario 1: The price of Bitcoin does not surpass the strike price of $10,500. This means that you simply lose your premium.

Scenario 2: The price of Bitcoin does surpass $10,500 within 7 days. This then gives you the option to make a purchase and profit from the upside.

BitMEX DOWN (Downside Profit) Contract

The BitMEX DOWN (Downside Profit) Contract works in exactly the same way as the UP contract, albeit in the exact reverse. Ultimately, by engaging in this particular derivative, you are speculating that the underlying cryptocurrency will go down in value before a pre-defined time period.

So now that we’ve covered the main derivatives that you can trade at BitMEX, in the next section we are going to discuss the specific cryptocurrencies that can be speculated on.

What Cryptocurrencies Does BitMEX support?

First and foremost, it is important to note that BitMEX functions on one cryptocurrency and one cryptocurrency only – Bitcoin, As such, all deposits, withdrawals, profits and losses are stipulated in Bitcoin.

Nevertheless, here’s a breakdown of the specific cryptocurrency derivative pairs that you can trade at BitMEX.

Bitcoin (BTC)

  • BTC/USD – Perpetual Contracts (no expiry)
  • BTC/USD – Futures (1 month expiry)
  • BTC/USD – Futures (4 month expiry)
  • BTC/USD – BitMEX UP (Upside Profit) Contract (7 days)
  • BTC/USD – BitMEX DOWN (Downside Profit) Contract (7 days)

Ethereum (ETH)

  • ETH/USD – Perpetual Contracts (no expiry)
  • ETH/BTC – Futures (1 month expiry)

Cardano (ADA)

  • ADA/BTC – Futures (1 month expiry)

Bitcoin Cash (BCH)

  • BCH/BTC – Futures (1 month expiry)

Litecoin (LTC)

  • LTC/BTC – Futures (1 month expiry)

Ripple (XRP)

  • XRP/BTC – Futures (1 month expiry)

Tron (TRX)

  • TRX/BTC – Futures (1 month expiry)

 Now that you know the specific derivative products that you can trade at BitMEX, in the next section we are going to explore the platform’s leverage offering.

Leverage at BitMEX

It is safe to say that one of the most important factors that has led to BitMEX’s success is its leverage offering. In fact, unlike traditional brokerage platforms that operate under a stringent regulatory framework, BitMEX offers leverage to all of its customers – irrespective of experience or financial standing.

Firstly, BitMEX offers leverage on all of its crypto-centric derivative products apart from its UP and DOWN contracts.  This means that you can apply leverage on all of the previously discussed supported cryptocurrencies.

BitMex Leverage

The exact amount of leverage that you are able to get is specified by the underlying derivative. Each derivative product will have its own margin and maintenance levels, so it’s best to check this out before you get started. However, the platform’s most liquid market – the BTC/USD perpetual contract, offers users leverage levels of up to a whopping 100x.

In layman terms, this means that if you only had the Bitcoin equivalent of $100 in your account, you could effectively trade with a $10,000 bankroll. However, it is reasonable to suggest that trading at a level of 100x is no different to rolling the dice in a casino. In approximate terms, if your chosen investment went down by just 1%, you would instantly be liquidated. This means that your initial $100 margin would be lost in one quick swoop.

How Much Does BitMEX Cost? Fees and Funding Rates

The fee system employed by BitMEX is arguably just as complex as the derivative products it offers. This is further amplified by the fact that all deposits and balances are expressed in terms of Bitcoin, meaning that it can be difficult to know exactly what you are paying and when.

As a quick note, unless you are trading a BitMEX UP or DOWN contract, all trading fees at the platform utilize a market maker/taker system. This means that those providing the exchange with liquidity will receive a rebate (market makers), and those using the liquidity already available (market takers) will pay a variable trading fee that is expressed as a percentage.

BitMex Fees

Nevertheless, we’ve broken down the key points below.

Perpetual Contracts

If you’re looking to trade a BTC/USD or ETH/USD perpetual contract, then market takers will pay 0.075% per trade, while market makers will get a 0.025% rebate. Regarding the former, this is ultra-competitive.

However, it is also important to note that perpetual contracts also come with funding rates – irrespective of whether or not you apply leverage.

Perpetual Contracts Funding

In a nutshell, whether or not you need to pay a funding fee will be dependent on whether you are long or short. This will be determined by market forces, and you’ll know what you are going to pay before the funding round takes place. BitMEX executes funding every 8 hours, and the specific percentage will again vary depending on market forces. Here’s a couple of quick examples so that you can get your head around the funding conundrum.

  1. BTC/USD – Funding  is +0.06%As the funding rate is positive (+), this means that those currently long on Bitcoin will need to pay a funding fee of 0.06%. The fee is based on the amount you currently have outstanding on your trade. The funding fee is then paid to those that are short on Bitcoin as a rebate.
  2. ETH/USD – Funding  is -0.07%As the funding rate is negative (-), this means that those currently short on Ethereum will need to pay a funding fee of 0.07%. The fee is based on the amount you currently have outstanding on your trade. The funding fee is then paid to those that are long on Ethereum as a rebate.

BitMEX Futures

Market makers and market takers trading Bitcoin futures at BitMEX will pay -0.0250% and 0.0750%, respectively. For all other crypto-based futures on the platform, market makers and market takers will pay -0.05% and 0.250%, respectively. While there is no settlement fee for non-Bitcoin futures, all BTC/USD futures come with a settlement fee of 0.05%.

BitMEX UP and DOWN Contracts

All BitMEX UP and DOWN contracts can be traded without paying a trading fee. This is also the case for settlement.

Deposits and Withdrawals at BitMEX

As noted earlier, the entire BitMEX platform operates on Bitcoin, meaning that you can only deposit and withdraw BTC. The deposit process subsequently works in the same way as any other cryptocurrency exchange.

Once you have created an account at BitMEX, you’ll need to head over to the deposit page to access your unique Bitcoin wallet address. You’ll then need to head over to your external Bitcoin wallet, paste the BitMEX wallet address in, and transfer the funds.

Deposits & Withdrawals

BitMEX claims that all deposits are credited after 1 blockchain confirmation. This means that it should take in the region of 10 minutes. There is no minimum deposit to contend with, although derivative contracts normally start with a minimum margin of $1 (BTC equivalent). No fee is charged to make a deposit, other than the respective blockchain mining fee.

When it comes to withdrawals, this works in much the same way as the deposit process. You simply enter the external wallet address that you want to transfer the funds to via your BitMEX account portal.

BitMEX does not charge a withdrawal fee. Take note, BitMEX executes withdrawals once per day. As long as you make the request before 13:00 (UTC) then you’ll receive the funds the same day.

Who is Eligible to Trade at BitMEX?

Your eligibility to trade at BitMEX will be determined exclusively by the country you reside in. It has been common knowledge since day one that traders from the US cannot use the platform. Not only do BitMEX state this themselves, but the platform bans users accessing the website with a US IP address. However, it is also common knowledge that US citizens are able to bypass these restrictions with ease.

As all BitMEX accounts are anonymous, users can simply obtain a non-US VPN. In fact, although these numbers cannot be substantiated, it was reported earlier in the year that of the $965 billion that was traded on BitMEX in 2018, a whopping $138 billion of this was made up from users based in the US.

It was also recently reported that BitMEX has since made the decision to ban traders located in the three locations it has a legal presence. This includes Hong Kong, Bermuda, and the Seychelles – which is where its headquarters are based.

On top of the above, BitMEX also restricts citizens from Cuba, Iran, Syria, North Korea, Sudan, and Québec in Canada. However, how the platform enforces these restrictions remains to be seen.

Is BitMEX Safe?

Due to the sheer volumes that BitMEX is responsible for, one would expect that the platform utilizes institutional-grade security features to keep your funds safe. However, this should never be assumed and thus, we’ll need to further explore what security safeguards the platform provides.

Cold Storage

One of the most effective security controls available in the cryptocurrency exchange arena is that of cold storage. For those unaware, this means that the digital assets are stored in a hardware wallet offline – meaning that they are never exposed to online servers. In the case of BitMEX, although the platform doesn’t specify the exact proportion of user funds that are held in cold storage, it notes that it is the “bulk of funds.”

In order to access the funds held in cold storage, BitMEX has installed a multi-signature protocol. This means that of the three individuals that have access to the wallet, at least two of them must sign the transaction for the wallet to release the funds.

Two-Factor Authentication (2FA) and Email Notifications

On top of keeping the vast bulk of user funds in cold storage, BitMEX also offers a number of additional safeguards. Firstly, you have the option of setting-up 2FA. This means that every time you attempt to log in to your account you will be required to enter a unique PIN number that can only be obtained from your mobile phone.

On top of this, BitMEX will send you an email notification every time you perform a key account function. This includes logins, trade executions, deposits, and withdrawals.

BitMex Security

Although 2FA is not mandatory at BitMEX, email notifications are. The main reason for this is that hackers that have previously gained access to BitMEX user accounts have disabled email notifications, meaning that the true owner had no knowledge of the hack until they noticed their account balance had been withdrawn in full.

Regulation

As we briefly noted earlier, BitMEX is not authorized or licensed by any regulatory bodies. The parent company – HDR Global Trading Limited, is located in the Seychelles, which in terms of regulatory oversight, speaks for itself.

On the one hand, it is somewhat obvious that BitMEX would locate itself in a jurisdiction that is well-known for its lax attitude towards regulation, not least because of the nature of the derivative products the platform offers. However, it is important to remember that should BitMEX one day cease to exist, you will effectively have no one to turn to.

It should be noted that the platform’s CEO – Arthur Hayes, often makes appearances on mainstream media platforms such as Bloomberg and CNBC. This at the very least illustrates that the CEO is happy to answer questions in the public domain, and present the company as a transparent entity.

Customer Support at BitMEX

As a global platform with millions of customers located worldwide, BitMEX offers support in five languages. This covers English, Japanese, Chinese, Korean and Russian.

However, for an exchange that facilitates billions of dollars in trading volumes each and every day, it remains to be seen why the platform does not offer a telephone support line

Nevertheless, the main channel to contact BitMEX is by raising an online support ticket. Alternatively, the platform also has a preference on Wechat, Telegram (Russian only), Weibo, Twitter, and Reddit.

Irrespective of the language you require, the BitMEX customer support team operates 24 hours per day, 7 days per week.

BitMEX Review: The Verdict?

In summary, BitMEX is now one of the most popular cryptocurrency exchanges in the industry – especially in terms of trading volumes.

However, unlike industry counterparts Binance, Coinbase, and Bittrex, BitMEX specializes in highly complex crypto-centric derivatives. As such, the platform should only be accessed by those of you with advanced knowledge of sophisticated financial vehicles.

If you do, then you’ll have access to perpetual contracts, futures, and the platform’s very own UP/DOWN contracts.

On top of its huge trading volumes and 24/7 high-frequency capabilities, BitMEX is best known for its ability to provide leverage at the click of a button.

In fact, regardless of your experience in the derivative marketplace, you can obtain leverage of upto 100x on the platform’s hallmark BTC/USD perpetual contracts.

With that being said, it is absolutely fundamental that you understand the risks that both derivative and leverage trading brings prior to opening an account with BitMEX.

Visit BitMex

BitMex

8

Ease of Use

8.0/10

Fees

8.0/10

Reputation

8.0/10

Customer Support

7.0/10

Design

9.0/10

Pros

  • Margin Trading
  • High Volume Exchange
  • Lots of Derivative Products
  • High liquidity
  • Good Trading Engine

Cons

  • Not for Beginners
  • No Fiat Payments
  • No Phone Support
Kane Pepi

Kane holds a Bachelor's Degree in Accounting and Finance, a Master's Degree in Financial Investigation and he is currently engaged in a Doctorate - researching financial crime in the virtual economy. With a keen passion for research, he currently writes for a variety of publications within the Financial and Cryptocurrency industries. kane@moneycheck.com


Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank or credit card issuer and have not been reviewed, approved or otherwise endorsed by any of these entities.


Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.


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